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Business valuation in Texas: 3 approaches

A Texas couple going through a divorce already has a lot to deal with. If they have children, custody and support may be primary concerns. Beyond that, the appropriate division of property is essential for both parties to be able to maintain a reasonable standard of living after the divorce. When assets include a business, a new complication arises, particularly if the business is considered community property. In order to decide how the business will affect the division of property, a business valuation will be required.

Whether the couple decides to sell the business or one partner opts to buy out the other’s share, they will want to understand the full value of the business. A professional business valuator will use one of three methods. The most straightforward method is to add up the assets and subtract the liabilities. A valuator may also total the amount the couple would receive if they paid off the business’s debts and sold the assets.

A second method a valuator may use is to compare the couple’s business to the value of other recently sold businesses with similar assets. The drawback to this method is that there are not always similar businesses with which to compare. Of course, the most complex and complete method includes the prediction of future earnings of the business. A valuator would examine past earnings and calculate a reasonable value using a formula.

When determining the value of a business, a thorough valuator will include the intangible factor of goodwill. To ensure a business is assessed to its fullest value, Texas business owners facing divorce may rely on an attorney who has access to professionals in this area. Business valuation is the first step toward a fair and equitable division of assets.  

Source: thebalance.com, “3 Business Valuation Methods“, Susan Ward, Accessed on April 28, 2017

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